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3 Boilerplate Commercial Contract Provisions That Deserve Attention

Posted by Billie Munro Audia on December 16, 2022 at 11:48 AM

boilerplate legal clause provisions commercial contractsIn the world of commercial contracts, “boilerplate” means certain routine clauses that appear in nearly all business agreements. They typically address the mechanics of the contract, such as what law governs a dispute and if a catastrophic event will suspend performance obligations. It is a common misconception that boilerplate provisions are generic and nonnegotiable, which is one reason they are often overlooked. However, it is important to understand that while “boilerplate” refers to standard types of clauses, the terms in those clauses are not standard, and they are negotiable. Because these terms may significantly impact the parties’ rights and obligations under the contract, understanding them is vital.

Below are 3 of the most common boilerplate provisions and why they deserve attention:

Dispute Resolution
This
boilerplate provision sets out key aspects concerning how the parties will resolve a contract dispute, including which jurisdiction’s laws will apply to a dispute (a.k.a. choice of law), location of the court that will adjudicate the dispute (a.k.a. venue), and at what stage, if any, mediators or arbitrators may be involved in resolving the dispute. Along with choice of law, this clause may also dictate in which county, state, or country a lawsuit must be filed if the dispute goes to court. For example, if each party is located in a different state and the main output (e.g., manufactured computer chips) occurs in yet another state, their commercial contract should clarify which state law and venue apply. Contracting parties from different states may opt for a “neutral” state’s law to govern a dispute, such as New York or Delaware, as a mutually acceptable compromise.

A lawsuit’s venue may be critical, and sometimes dispositive, to the decision. For example, given that the availability of injunctive relief varies by circuit, venue can play a critical role in an intellectual property infringement dispute. While some parties may consider it reasonable to select one state’s laws to govern a dispute but a different state’s courts to adjudicate it, judges tend to look unfavorably on such arrangements. Thus, it is generally advisable for a commercial contract to specify the same jurisdiction for both governing law and forum. Given that this boilerplate provision details how a contract dispute will be resolved, it merits focused attention.

Entire Agreement (a.k.a. Integration Clause)
This boilerplate provision confirms that the contract signed by the parties includes all key aspects of the business arrangement, establishing that if something isn’t in the contract, it is not part of the deal. It may also specifically exclude the parties’ prior and contemporaneous business proposals, letters of intent, and the like. So, for example, if the business team considers the vendor’s proposed tech development timeline critical to the deal’s success, then it should be expressly included and incorporated into the contract. Because an entire agreement clause states that the contract terms are complete and final, the contract should incorporate all key aspects of the parties’ commercial arrangement.

Force Majeure
This boilerplate provision exempts one or both parties from performing under the contract during a catastrophic event, like a war. Its name translates to “superior force” in French. Generally, it lists the applicable force majeure events, including “acts of God,” that will suspend contract obligations for a set time period during and following such an event. A force majeure event, like a hurricane, may not excuse contract performance obligations unless it is specifically listed in the clause. For example, when the Covid-19 crisis shut down many businesses, force majeure clauses were critical to determining whether or not businesses could be excused from their contractual obligations. If the clause listed epidemic or pandemic, then some businesses were able to rely on it. Many force majeure clauses also list obligations that will remain in effect during the force majeure event, such as payment of fees, which may (or may not) make sense for a particular deal.

If performance by the party affected by the force majeure event is delayed for a certain time period, then the other party may want the right to terminate the agreement and receive a pro rata refund of prepaid fees for the goods or services suspended due to the force majeure event. Since there are many facets to a force majeure clause, it is advisable to seek legal guidance. Likewise, because this clause determines which rights and obligations may be suspended during certain catastrophic events, it is important to try to clarify those terms in advance, rather than attempting to resolve them in the midst of a high-intensity situation.

In closing, keep in mind that while one party may suggest that boilerplate clauses are standard and protect the interests of both parties, in practice, none are per se standard, and they are negotiable. Given their legal and business implications, boilerplate provisions warrant careful consideration and review—ideally with the help of legal counsel before signing any commercial contract. If you would like assistance with a commercial contract, please contact Billie Munro Audia at bmaudia@outsidegc.com.

 

Bille Munro Audia is a Partner on our New England-area team. She is a highly effective General Counsel with deep global experience in the tech and retail sectors, and a proven negotiator, achieving success in numerous high-stakes transactions. Billie's practice currently focuses on SaaS deals, cloud-computing transactions and commercializing medical technologies on behalf of her OGC clients.

 

 

Topics: commercial contracts, force majeure, contract terms, boilerplate provisions, dispute resolution, entire agreement clause

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